U.S. editorial excerpts -3-.
Selected editorial excerpts from the U.S. press:
PLEASE DON'T CALL IT TIGHTENING (The Wall Street Journal, New York)
Whatever else you call it, please don't describe yesterday's Federal Reserve decision to raise the discount rate by 0.25 percent as any ''tightening'' of credit. That was the message from the Fed itself, which seems intent on keeping money as easy as possible for as long as possible.
The discount rate -- sometimes called the ''penalty rate'' -- is what the Fed charges banks that borrow from the Fed when they need liquidity. The discount rate is not to be confused with the fed funds rate, which determines the price of short-term credit throughout the economy. Yesterday's move takes the discount rate up to 0.75 percent, though it is typically a full percentage higher than the fed funds rate, which remains at an historic low between 0 percent and 0.25 percent.
The discount move makes sense, and is if anything overdue, given the return to health of the overall financial system. Banks have been riding the yield curve -- borrowing at 0.25 percent and lending long -- to make piles of money, and there's no reason not to restore a normal penalty rate.
Meanwhile, we assume the Fed noticed yesterday's report of a 1.4 percent increase in producer prices in January. Wholesale prices are up 4.6 percent over a year ago and an annual rate of 9.8 percent in the past six months. Most of this increase came from energy, which the Fed will want to dismiss because it is not part of its ''core'' price index. Consumers at the gas pump or paying their monthly electric bills may feel differently. Even core prices, which exclude food and energy, are up at a 3.2 percent annual rate in the last three months.
The Fed's move takes it up to 0.75 percent, though it is typically a full one-percentage point higher than the fed funds rate, which is now between 0 percent and 0.25 percent. the Fed had reduced the discount rate during the financial panic in order to ease the burden on banks.
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|Publication:||Japan Weekly Monitor|
|Date:||Feb 22, 2010|
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